While most in the industry would feel that this move by RBI is lop-sided towards protecting the consumer and wouldn’t augur well for Banks and Developers, I think it’s a very nice move which spells a win-win situation for all. Nahar Group was the pioneer in setting up the 20:80 scheme and has sold till date thousands of apartments based on this scheme.
Benefits to consumer:
- Consumer doesn’t have to pay the appreciated rate typically during the period of launch and possession.
- He is secured that his loan has been sanctioned much before he takes possession.
- He can plan his finances well in advance since his EMIs would begin only after taking possession.
- In case of delay on part of the developer the consumer is not punished since the interest is borne by the developer right till the time of possession.
- Bank in a way monitors the progress of construction as it releases funds as per construction stages. The Bank is in a position to apply pressure on the developer for timely completion.
- The consumer pays only for what is delivered in terms of construction.
Benefits to Banks:
- Business hungry banks are over leveraging their risk taking capacity by offering upfront disbursement of 80%.
- They have little control on verifying that the funds disbursed are actually being deployed for the purpose for which they were meant to.
- There is a constant risk undertaken by the bank, in case the developer fails or decides to delay the construction as these would amount to higher NPAs
- Thus the new policy actually would refrain the banks from taking risks and also ensure that they would be in a position to force the developer for timely completion.
Benefits to Developers:
- We understand RBI feels that very often a developer tends to take risks higher than needed and this could cause a substantial financial turmoil for the organization.
- There have been instances wherein once the developer receives complete funds that were to be generated from the project – 20% from the consumer and 80% from the bank, he is not motivated to complete the project in the stipulated timeframe.
- A new land parcel has always been a Developer’s weakness and he may tend to deploy the funds in creating more land banks and very often this tendency leads to a financial crash when his calculations go awry.
- We agree with RBI’s policy since the Developer will in a way be forced to make use of the funds for the purpose for which they were awarded and would be prevented from taking undue risks. This would indeed ensure the financial good health of his organization.
To conclude, we feel that in a scenario where the GDP growth is poised to slip to 4% from expectations of 6% and where the Infrastructure and Housing Industry contributes up to 6% to the GDP, schemes like 20:80 go a long way in helping home buyers to achieve their dream.
With the housing demand pegged at 27 million, abolishing 20:80 would be detrimental hence such schemes should be retained but only after cautious measures are taken.